Using FSA's Just Got Easier
Tax Tip of the Week | November 13, 2013 | No. 224 | Using FSA's Just Got EasierThis Change May Occur As Soon As 2013
The Treasury Department and the Internal Revenue Service have loosened the “use it or lose it” rule for flexible spending arrangements for health care, allowing participants in health benefit plans to carry over up to $500 from their FSA from year to year.The goal is to make health FSAs more consumer-friendly and provide added flexibility. As part of the Affordable Care Act, the federal government limited the amount of money that could be put into an FSA to $2,500 a year and the new rule would encourage a greater number of workers, particularly low- and moderate-income taxpayers, to take advantage of FSAs without worrying that they will lose the money they put into the accounts.However, it will be up to the employer to decide whether or not to offer this option to employees. Most employers have traditionally been able to hold onto any money left by employees in their FSA accounts.This guidance permits employers to now allow employees to carry over up to $500 of the unused amounts left in their health FSAs for expenses in the next year. Some plan sponsors may be eligible to take advantage of the option to adopt a carryover provision as early as plan year 2013. In addition, the existing option for plan sponsors to allow employees a grace period after the end of the plan year remains in place. However, a health FSA cannot have both a carryover and a grace period: it can have one or the other or neither.The modification does not affect another provision of the Affordable Care Act restricting the use of health spending accounts, or HSAs, for buying over-the-counter drugs and other health care items without a doctor’s prescription.Notice 2013-71 explains the modification in greater detail. There is also a fact sheet on the modified rules from the Treasury Department.Be sure to check how your employer will implement this benefit change.You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.
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